Wednesday, September 12, 2012

It's The Economy, Stupid

In the past 60 years, the armed conflicts of the world had one major motive: The economy. Hence, it would be surprising not to find economic motivations in the conflict between Israel and Palestine. Indeed you find a lot. This post argues that Israel, which is the occupying power over Palestine, unilaterally imposes several regulations that have a double effect -- on the one side improving Israels security, and on the other side benefiting the Israeli economy at the cost of the Palestinian economy. In some cases the emphasis appears to be on the second objective.
The article concludes that the status quo of the occupation is the economically most attractive option for the Israeli government, while the Palestinian governments have no power and nothing to offer in negotiations.
Therefore, in order to change the status quo, an external incentive of roughly 100 billion $ is needed to make sustainable peace attractive for the Israeli government. This could be a negative incentive (economic sanctions against apartheid-like situation), or a positive incentive (financial aid for Jewish settler relocation back into Israel), or a combination of the two.

The Governmental Rationale of Israel

To be more precise, we should talk about the rationale of the ruling coalition of Israel. Generously simplified, Nethanyahus coalition consists of ultra-orthodox who would agree to virtually anything, provided that their generous welfare is paid. There is people with military affiliation, that would like the defence funds to be increased. And there is a very well organized settler lobby, which likes to benefit from using Palestinian resources virtually for free (land, water, limestone, telecommunication frequencies etc.)

In order for the ruling coalition to stay in power, they need to keep all those fat and happy -- which Nethanyahu seems to manage quite well, looking at the election polls.

Some argue that the occupation is a high economic burden for Israel (mainly defence expenses). That's true, but for the ruling coalition it is a welcome redistribution of wealth taken from the general population (including Palestinian tax payers of Israeli custom fees etc.) and allocated to the defence sector which is part of Nethanyahus constituency.

Once the general public goes to the streets, calling for social justice, Nethanyahu plays the "external threat" card of either terrorism, nuclear threat, or distributing some gas masks. This card has worked again and again pretty reliably during recent years to silence any protests or critical debates.

In its pursuit of beneficial or profitable agreements with the Palestinian side, the government of Israel is interested in keeping the Palestinian administration at the brink of bankruptcy, because this is where those are most likely to give in for compromises, as explained in the next paragraph.

The Governmental Rationale of Palestine

Also the rulers of Palestine primary interest is to stay in power. Since there are no elections, all it needs (whether Fatah in West Bank or Hamas in Gaza) to stay in power is enough money, which is used for governmental and police salaries, and a number of other things to stabilize the regime.

Negotiations with Israel can be very unpopular (like Oslo, which resulted in an Israelization of 60% of the Westbank land and 80% of its water), but sometimes it is the last resort for a government to acquire enough money to stay in power. The Arafat regime, who signed Oslo and received western funding as a consequence, would otherwise have disappeared in oblivion being entirely bankrupt.

The current West Bank government is on the brink of bankruptcy again, and they recently signed an updated version of paris protocol for economic cooperation, secretly negotiated with Israel. Palestinian demonstrators are burning this agreement on the street these days. The PA intends to acquire more tax revenues through the new agreement by tighter control of goods shipped into the West Bank.

Israel has the power to replace Palestinian governments any time -- either by military intervention, or by convincing western governments to stop their aid flows, which last happened after the 2006 elections with the Hamas majority that couldn't maintain its government not being able to pay public servants salaries -- so Fatah took over, which is more ready to sit on the uneven negotiating table with Israel. With Fatah in power, however, Israel can not threaten to overthrow the Palestinian government, lacking attractive alternatives. Therefore, the aid flows will continue for the foreseeable time, keeping an acceptable standard of living at least in the West Bank, while the competitiveness of the Palestinian economy is further deteriorating.

Real Estate Business

Originally intended for security reasons to protect the border with Jordan, Israel built a couple of military sites in the West Bank, which soon turned into or were accompanied by settlements. Today there is half a million Israelis living on Palestinian land. From the original security intention, it turned out to be a very profitable business to sell Palestinian land to Israeli investors. Basically, because you can take the land for free, especially those 60% of the West Bank (C-Areas) that Arafat generously "sold" to Israel within Oslo accords. Within the Oslo negotiations, Israeli justification for the need to control this land was purely security reasons. However, only a tiny fraction of the vast C-Areas is in principle eligible for Palestinian dwellings, and even there, 97% of Palestinian building permit requests are denied. This leaves more Palestinian land to be sold to Israeli investors.

Limestone and Marble Business

Palestine has an excellent limestone quality which makes it the number one export good of the Palestinian economy. Palestinian limestone quarries are mostly located in A-Areas under Palestinian administration -- mostly urban areas. Existing quarries are rapidly depleting. Just like for building permits, hardly any Palestinian has ever gotten permission to create a quarry for stone in a C-Area. Meanwhile Israeli investors are digging in, in that rural part of the West Bank. Apart from being able to quarry in the rural parts of the West Bank, they have another competitive edge prepared for them by the GOI. They can easily transfer their goods to the port to export, while Palestinian competitors have to hire two different trucks with two different drivers, accept a step bill and long route and waiting time for security checks. For a bulky good like limestone, that adds up to become a significant share of the total cost.

Water and Agriculture

The debate about the heavy water extraction from Jordan river by Israel aside, Israel controls 100% of the wells in the occupied West Bank, and takes 80% of the water from there -- in accordance with Oslo deal. That's certainly one of the chapters of Oslo that was most regretted on the Palestinian side. While most urban Palestinian areas still enjoy a more or less regular flow of water, partly thanks to western development aid, partly thanks to Palestinian water that needs to be bought back from Israel, the Palestinian agriculture suffers most from this rule. In the dry but fertile Jordan Valley you find plenty of artificially irrigated crops, almost all of them being part of Israeli settlements having access to the larger share of the West Bank water. Palestinian farmers are struggling with rising water prices, which have become a large share of the total production cost, giving Israeli farmers a decent competitive edge over their Palestinian counterparts. Just like with limestone, logistics for export again is an issue where Palestinian farmers are paying much more for, including the risk of fruits and vegetables turning bad because of the long waiting time in hot climate.

Telecommunications

There are Israeli and Palestinian Mobile operators. Israeli operators can easily cover the entire territory of historical Palestine (aka "greater Israel") with their antennae. Palestinian operators can easily cover only Palestinian cities in West Bank and Gaza, and even there, their service is limited to voice services excluding broadband data -- thanks to regulations of the occupying power. More detail is provided in another blog post in this blog.

The competitive edge that Israeli operators gain from this is obvious. It causes many Palestinian clients to use Israeli operators -- either because they want 3G data services, or because they like to travel between occupied East Jerusalem and West Bank without paying high roaming fees, or because they want to call their relatives in Jerusalem without paying international calls.

Other Affected Sectors

Further affected Industries are all importing and exporting businesses, in particular chemical industry, leaving the competitive edge for the Israeli counterparts. Any heavy industry, including building materials like concrete in Palestine is not allowed at all preventing any competition. Access to the Palestinian part of the dead sea is denied to any Palestinian industry (tourism, chemical, cosmetics), but granted to Israeli settlement counterparts (Ahava, Several beach kibbuzim, etc.). Gaza is importing fish from Israel due to its restrictions on fishing in the Mediterranean. The airport security interviews discourage tourists from visiting, purchasing, or staying in hotels in the West Bank and do these things in Israel instead.

Conclusions

The status quo of having a permanent occupation (45 years so far) under Oslo rules appears to be economically the best option for the ruling coalition in Israel. The cost of pulling out of 1967 Palestine would be extremely high -- just calculate a roughly 200,000$ compensation in average per each Israeli West Bank and East Jerusalem resident -- that's about a 100 billion dollar, in addition to the risk of heavily armed settlers sparking a civil war. Even if the Palestinian administration agrees on some land swaps, the cost will not be significantly reduced, because the Palestinian side, knowing Israels outside option of costly relocations, will never sell or swap the land for cheap (like Maale Adumim, Pisgat Zeev, Modiin Ilit etc.)

Maintaining the status quo, the Israeli government can continue to keep their settler constituency happy without having to pay much for it (Palestinian land and resources are "for free"), and with their economy making extra revenues (creating tax revenues) at the cost of the Palestinian economy.

A change in policy might happen if the international community offers a budget support for Israel in the range of 100 billion $ in exchange for pulling out of 1967 Palestine, or alternatively put sanctions worth a similar amount on the Israeli government, until Israel has ended the status quo that denies Palestinians most of the rights -- the status quo being comparable on many levels with apartheid (which back then gave justification for sanctions against the South African government). Western politicians may be hesitant to call for sanctions, being afraid that their career will be ruined -- it is likely that they will be slandered as antisemite by the Israel lobby.

So, the sanction scenario is pretty unlikely, also looking at the US veto power in UN security council -- resulting in, a peaceful long term solution being 100 billion dollars (and counting) donation away from reality. The pedagogical effect of such a donation to Israel, the spoilt child of USA, is somewhat dubious ("the more illegal settlements you build, the more money you get"), but well, who cares if that's the only way for sustainable peace in the region.

100 billion sounds like a lot, but it is much less than the US military aid for Israel was between WWII and today. If one would manage to re-allocate this aid to help Israel to withdraw its settlements from Palestine, it would take a mere 15 years at today's aid rate. And after that, one can guess that Israels military spending can be significantly reduced, turning the Israeli Occupation Force (IOF) into an Israeli Defence Force (IDF), and leaving more money for the pressing social issues in Israel.

It's not that easy, you will say, and you are right. But you have to acknowledge, money makes the world go round, and looking at the Middle East conflict, money has certainly more vigor than politician's words do.